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What Next For The Markets ?

Monday, October 10, 2011

Inflationary concerns, fears of a slowdown in domestic economic growth, less than expected Q2 earnings and the turmoil in the global economy have taken a toll on the Indian stock markets. So far, the benchmark stock indices have corrected by about 30% from their July peaks. And amidst high volatility, the question being asked is: What next for the markets? Mayura Shanbaug spoke to the experts and brings forth the mood amongst the major players. Their views…

The markets have been largely following the directions dictated by the trends and news flow from the World Markets. “Closer home, the trends will follow the investigations and outcome of the 2G - 3G scams, geo-political situation across our neighbourhood, political stability, the inflation rate and the resultant stance of the RBI,” says Alok Churiwala, Managing Director, Churiwala Securities. “We expect to see inflation rates come down marginally as also interest rates to soften over the next few months. Softening of commodity prices will also go a long way in giving relief to companies that are under stress due to increasing costs of input. Over and above, if the government can push through some reforms in the winter session of the parliament, then that will be a good time for markets to rally,” he said.

”Much of the negatives that are on the horizon are in the current prices and the markets are clearly oversold,” he added.

“The markets are very volatile and the scenario is confusing. There is bad news everywhere, although most of the factors are already known to the market. There is a growth scare; the quarterly numbers are abysmal. Inflation is a worry. No one wants to invest so a sharp reversal is rather unlikely,” says Ashu Madan COO of Religare Securities
“But I do not feel that the markets would tumble further. At a lower level I feel that we would reach 4,700/4,750 levels and on the upper side 5,100/5,200 levels.
The markets would move in this range and would be very volatile. There is no trigger for a breakout (in either direction) in sight” he added
According to Shanu Goel, Senior Research Analyst, Bonanza Portfolio, the Nifty is likely to take cues from Q2FY12 results. ”In the event that Q2FY12 results confirm a slowdown in the economy, the Nifty is likely to test the lows of 4680 and then 4500. However, positive news flows can enable Nifty to inch upwards to the 5160-5250 levels,” he said.

Another view is that, the “Markets will continue to be choppy with downward pressure. In the last three months the BSE SENSEX has fallen from the 17200 levels to the 16000 levels. We may see a few rallies as seen on Friday, but it would be difficult to reach the previous levels for sometime. Markets may yo-yo between 16500 to 16800 levels,” says Arun Kejriwal, Founder, Kejriwal Research & Investment Services.  

“We see FIIs selling also and this clearly reflects the inherent weakness. So probably, that readjustment is on the minds of people and that is why in spite of many positives, even for a shorter term, we still see  selling, which clearly suggest that there could be a readjustment or re-rating on the cards and that is why we see this weakness at these levels also,” he said.

However, there are people like Uday Narayan Dubey, Vice-President, Research & Institution Business, R K Global Shares & Securities Ltd. who feel that the severe collapse that the market was anticipating has already passed through.

The markets have corrected by approximately 19% and valuations (P/E-13.2x) are below 10% of period-averages. “Looking at the charts; the domestic markets are already trying to come  upwards in the last one month… the breadth is somewhat positive and they are consistently discounting bad news. Pressures from global front are seemingly slowing down, and we don’t think our markets will be collapsing from a growth perspective throughout the Q3FY’12, as markets have probably already hit their lows, “he says. However, he expects to see growth taking a back-seat.” It will be slow growth for the markets and we could see a somewhat range-bound movement throughout the Q3FY’12 with occasional jitters, till we see some strong stability emerging on the global front,” he adds.

The global factors together with the quarterly result season is about to start and is expected to increase volatility on the markets feels D K Aggarwal, CMD, SMC Investments and Advisors. “In the result season I think we may see more misses than hits on account of compression in the margins. Both raw material costs and debt servicing is pinching India Inc. In the best case scenario, I expect the markets to remain sideways and range bound,” he says.

So the majors in this market will continue to be the FII flows and what happens in the international markets.  US and European markets will continue to exert influence. Back home, a weak rupee; the outcome of RBI’s monetary policy on 25th October, IIP data and results impact of Q2FY12 are some of the factors to watch out for.

I would not like to take a call on that at this stage. Every breakout/rally has a different rally and I would not be able (would not want to) take a call at this time as to what sectors or companies would lead the next breakout.
Ashu Madan, COO, Religare Securities

Picture would be clearer after the results. However, sectors based on the domestic consumption theme including agriculture, banks and IT stocks are expected to do well. Interest sensitive sectors and reality should be avoided at this juncture.
—D K Aggarwal,
 CMD, SMC Investments and Advisors

Pharma, FMCG are our favourites.
Waqar Naqvi, CEO, Taurus Asset Management Co.

I would recommend looking at the PSU's closely; there are many a gems therein, with lots of embedded value in the stocks like NHPC. One could also follow the contrarian approach and selectively invest in Telecom stocks like Rcom or Metal stock like Sterlite Ind.
 —Alok Churiwala, MD, Churiwala Securities.

We favour selected stocks in infrastructure and financials sectors.              
 —Sandeep Tyagi,
MD, Estee Advisors.

IT/ITES Infosys, TCS and Wipro. Though, we have a BUY rating on all the three companies and all of them will stand to gain from the depreciated rupee throughout the Q3FY’12. However, we readily prefer Infosys, as the stock has shown strong upsides and has come up ~16% in the last three weeks. Cements -  We maintain a BUY on ACC and Ambuja, as the realization for these companies are expected to be stable. FMCG - our FMCG picks are ITC, HUL and Nestle as they continue to achieve robust sales figures and increased income levels as also ever improving margins. However, in the short-term we expect to see range-bound movement from the FMCG stocks as inflation seems to biting the toes of the consumers. We maintain a Buy rating on the stocks and would vie for a long-term investment motive on this sector. Mining - Coal India remains our preferred pick, as the demand for coal remains robust domestically and there is a supply deficiency in the market.
— Uday Narayan Dubey,
Vice-President, Research & Institution Business, R K Global Shares & Securities

We recommend interest rate defensive sectors like – pharma, FMCG, Paints and IT. Within these sectors we are recommending fundamentally good stocks like – Lupin, GSFC, Petronet, Berger Paints and Hexaware. We also recommend Navneet Publications, Amar Remedies and Stride Arcolab.
Shanu Goel,
Senior Research Analyst-Bonanza Portfolio

I do not want to recommend any sector or stock at this particular moment, we would like to see the Q2 results before taking any decision. Investors can take a contrary call on the banking sector, as banks would be the drivers of any revival in the economy.
Arun Kejriwal ,
Founder, Kejriwal Research & Investment Services.  

To buy or not to buy?
“The problem with retail investors is that they always enter and exit the market at the wrong time,” says Hemen Kapadia, CEO, Chart Pundit when asked whether this is the right time to buy?

Though Indian stocks are attractive, especially after the recent correction, the consensus on the street is that a small investor should sit on the sidelines till the coast is a little clearer.

“I am distinctly uncomfortable with the current market situation and would not recommend anything at this level,” says Kapadia. “At least for the current month, small investors should wait for a further dip. I would prefer to wait for a further dip possibly to the 4500 levels or so before investing,” he adds.

However, Amit Chheda, Head Equity, Inventure Growth and Securities says “For small investors, I would suggest that they remain nimble footed and book profits regularly. So while the markets are range bound with an upward bias, investors to have a test-match style strategy where 1s and 2s help to lock-in a good score,” he says.” We could see fresh buying coming in October,” he adds.

Churiwala feels that fear does exist of some bad news emanating from overseas, which could tank the markets further, but there still remains a compelling case to invest in the markets at current levels. “Fundamentally, our markets are fairly priced. One strategy that investors can deploy is to stagger their purchases over a period of time coinciding with every further fall.” “Investors should bear in mind that calling the tops and bottom of the markets in the current situation are impossible tasks,” he says.
“Investors should enter the equity markets only if their investment horizon is more than 2 years.  The increased volatility can swamp any expected returns from the markets,” warns Sandeep Tyagi, MD and CEO, Estee Advisors, a quantitative investment advisory firm.

However, all are not naysayers. According to Aggarwal, opportunities come in the times of adversities.” In times of pessimism the risk to own stocks is far less which provides a cushion on the downside. Small investors who want to build long term portfolios can start investing now in a staggered manner,” he suggests.
“We are relatively positive in the next three month period. India has been performing better among the BRIC countries. The Indian market probably has it because they get better return on capital than the rest of the BRIC region,” says Dubey. However, he believes that the best time to enter the markets may be during the end November..

 “The investors should also decide among their short-term & long-term investment strategies as certain sectors are best suited for long term investments. For example, we prefer banking for the long term, but given the present stance of the banking sector (in tandem with global banking sector) we would like to wait till mid-November,” he adds.

Similarly Waqar Naqvi, C EO, Taurus Asset Management, feels that Investors should keep investing smaller amounts in equity Mutual Funds, as the fact is that these market levels are definitely not high. “Besides, we never know when the markets will look up,” he says.


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